Student Debt and Credit Education Blog

Often times, you see words or phrases on student credit card offers that may not make a lot of sense or seem misleading. Check out the terms I’ve outlined below and discover what some of the more common snippets actually mean:

cash advance – A cash advance is when you use your credit card like checking account, and withdraw money from it. You usually have to set up a special PIN number for this, and can do it at most ATMs. I highly recommend never doing this because the money you withdraw has a much higher interest rate on it than simply charging whatever you are buying. For example, my MasterCard’s purchase APR is 13.9%, and its Cash Advance APR is 24% — pretty big difference.

charge card - A charge card is a special type of credit card, because it has to paid off at the end of the month. Think of the old style American Express cards. Many business credit accounts are charge cards, and most have a much higher line of credit (or an unlimited one) and a set annual fee for use.

credit limit – Your credit limit is the maximum amount of money you can charge on your credit card without incurring penalties or extra finance charges. If you go above this limit, it can hurt your credit score and rack up all sorts of hidden charges in the fine print of your bank statement.

credit score – Raising your credit score is pretty much the #1 reason for using a credit card. It is a number that is generated by three different credit card bureaus (Transunion, Equifax, and Experian) and is used for a ton of different things you will likely do in your life… like buying a car, buying a house, renting an apartment, and even background checking for a new job. The higher your credit score, the better equipped companies think you are to handle any type of financial debt, and as a result, they are more generous in their offerings to you, be it a lower interest rate on a loan, or an approval on that apartment you’ve been eyeing with your best friend.

default – Default is something that it is vital that you understand, from the moment you are issued a credit card. The bottom line is this: if you fail to make more than 2 or 3 monthly payments in a row (depending on the specific rules of your bank) you can go into default, and get crazy amounts of interest and a much higher APR levied on your credit account. It also pretty much ruins your credit score. Short and simple — always make your minimum payments.

fixed interest rate – A fixed interest rate means that your Annual Percentage Rate (APR) on credit card purchases does not change with the performance of the economy. If you can qualify for a low fixed rate APR, you are in really good shape and probably have a good or excellent credit score.

secured credit card – A type of credit card that requires a deposit for use; think of it like a security deposit on an apartment — you pay it at the beginning and get it back when you close the card or roll over into an unsecured type card. Banks typically offer these people with bad credit or short credit history to (re)build their status with the credit bureaus. Be on the lookout for fees, because there tend to be a lot associated with this type of card.

unsecured credit card – This is the most common type of credit card. You are given a line of credit, and you are allowed to make charges up to the ceiling of that line. You are required to make a minimum payment each month, usually derived by some formula the bank has established on your total balance. Depending on the features on your card, there may or may not be an annual fee or membership fee — check the fine print.

variable interest rate – A variable interest rate means that your annual percentage rate (APR) on credit card purchases can change depending on something called the Prime Interest Rate. This rate is officially set by the Fed and is totally dependent on economic stability. If the economy is good, the rate will be low; if the economy is bad, you’ll be paying ridiculous amounts of interest. New laws going into effect soon will regulate banks’ ability to change your interest rate and require them to notify you of these changes and the ability to opt-out and close your account.

ScholarshipPoints Code: UNDERSTANDCREDIT

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